Credit 101 for ag producers

Traditionally there have been many presentations, papers and news releases on the C's of credit and how credit impacts agribusiness. Credit is a tool that is required in the highly capitalized business of food, fiber and, more recently, energy production.

Access to credit has been a struggle for producers for ages. I remember my late father going on for hours about his battles for access to credit in the 1950s and 1960s. Agriculture requires large amounts of capital to fund crop inputs, cattle purchases, and acquiring the equipment required for production, along with crop insurance and other inputs to feed an ever-growing world population.

Three important C's of credit are credit scores, character, and communication. These may not be the traditional C's of credit taught at major agriculture schools that offer farm management classes, but I have found in my 30-plus years of professional ag experiences that they are very important C's of credit.

Credit scores are individual credit tests that are summed up in a number by the three major credit rating companies in the United States. These numbers indicate past payment performance by an individual.

A credit score is a number that impacts cost of funds, access to funds, and in some cases the cost of other required products in the world we live in such as the cost of auto insurance. Credit scores are built upon repayment history, credit balances, and the number of accounts an individual may have at a point in time.

Credit scores can be impacted by poor health insurance coverage, loss of employment, poor health, and other issues that affect repayment and timely repayment of open accounts such as utility bills, cell phone bills, and doctor bills. For many individuals auto payment may be an option to improve credit scores. Often low farm prices, the loss of a job or poor health can really lead to poor credit scores for an individual.

Character is also an important issue in the credit world. Can an individual make payments as agreed upon? Can an individual meet his or her promises as agreed upon? Remember, in the world of credit we are always on parade.

Making payments to clinics, doctors, utility companies, credit card companies and others can make or break a credit score and our access to low cost credit. Character deals with how an individual deals with adversity. Can an individual be honest with themselves, with others and be willing to deal with the issues head on?

Some individuals avoid the pending storm, refuse to look for options or go into denial mode about what the future may hold. Once an individual gives up on the situation, there will be others that take hold and make the decisions for all parties involved. It is best to face up to the situation and deal with what is ahead of all parties. Resolution of the problems will come. It is best to deal with the situation head on.

Communication is also an import C of credit. Cash flow issues, job losses and other factors that may impact repayment need to be communicated to credit sources. Too often individuals will shut down when bad things happen. It is important to be proactive when bad things happen. Crop failures, low prices, job losses and other factors that impact loan repayment need to be communicated to credit sources.

It is best to be upfront with all parties. I have experience with too many farmers that were not able to meet loan repayment obligations and simply avoided communicating this until there were few options on the table.

There are other C's to credit such as collateral and capital, but communication, character and credit score can be controlled by borrowers if they choose to be part of the solution.

Bob Panzer serves as a Farm Financial Consultant for Landmark Services Cooperative in Cottage Grove, Wis. He can be contacted at 608-669-4816 or email him at bob.panzer@landmark.coop.